Administrative State

Fiscal Conservatism, R.I.P.


- July 27th, 2019
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The drama over congressional testimony from Special Counsel Robert Mueller this week obscured other important legislation before Congress—like the mammoth $2 trillion, two-year budget deal lawmakers passed on Thursday.

While this budget deal got very little attention outside or even inside the Beltway, it is a massive agreement that betrays any notion of fiscal responsibility, and significantly limits the influence lawmakers have on spending over the next two years.

President Trump has declared his intention to sign it. He was pushed in this direction by Senate Republicans, who reportedly had no interest in saving even a little money by doing a one-year straight extension of spending.

Instead of working with fiscal conservatives within the administration, Senate Republican leadership haughtily declared they would not negotiate with the president’s staff, and hid behind misleading arguments about military funding.

Though some on the Right applauded the deal for preventing Nancy Pelosi’s Democrats from inserting liberal policy provisions—colloquially referred to as “poison pills”—this mischaracterizes as victory an agreement that does little more than enshrine the status quo.

According to the text of the agreement circulated to Capitol Hill staff, “poison pills” will not be added to any spending bill “unless agreed to on a bipartisan basis by the four leaders with the approval of the President.”

In other words, “how a bill becomes a law” is being touted as a major win, protecting pro-life priorities and a host of other issues. This is a distorted Washington way of making the obvious seem profound.

“Unless agreed to on a bipartisan basis by the four leaders with the approval of a president” is merely a handshake agreement that can be (and may be) violated at any point. Moreover, it is only what is already required to pass a spending bill in the Senate, where achieving the necessary 60 votes to end a filibuster requires the participation of both parties, anyway.

Defense hawks and some in the White House touted the deal as a win for the military, but this is hardly the case. Funding for the troops was again cynically used to manipulate support for a deal that, in reality, only increases defense spending above Fiscal Year 2019 levels by $5 billion.

Congress as a whole gets a pass on making any tough spending choices, as this agreement suspends the debt ceiling without consequence for the next two years, and places no limit on the amount of money that can be spent in the interim. And the outline of the agreement provides deeming authority, otherwise known as the process by which the Congress sets spending levels without ever having to pass a budget.

A Grim Fiscal Scenario
To understand just how bad this deal is, one has to appreciate the fiscal context in which it takes place.

In 2011, conservatives fought—and won—an agreement based around the concept of “cut, cap, and balance.” Under the leadership of conservative senators, and supported by the 2010 electoral Tea Party wave, President Obama signed the Budget Control Act (BCA), which placed spending caps on defense spending and domestic spending (outside of entitlements like Medicare, Medicaid and Social Security). Congress was incentivized to hold to these caps by a sequester—automatic cuts—that would kick in if spending went too high.

Thanks to the BCA, total federal outlays (in nominal dollars) actually declined for the first time since Dwight Eisenhower’s first term in office. From 2011 to 2017, the growth in federal spending, adjusted for inflation, was zero.

But Congress, being Congress, has spent years chipping away at this fiscal discipline. This current deal obliterates any that remains, thoroughly destroying what is left of the spending caps and rebuilding the culture of excess spending in Washington.

The backdrop to this is a dire fiscal picture. The federal deficit is set to exceed $1 trillion every year starting in 2022. According to the Congressional Budget Office, spending as a percentage of gross domestic product (GDP) rises to 21 percent this year, on track to 28 percent by 2049. Only three years (the war-time years of 1944 and 1945, as well as 2000) have had higher spending-to-GDP ratios. The federal debt held by the public will increase to 92 percent of the economy in 2029, up from 78 percent this year. Interest on the debt as a share of the economy will soon surpass defense spending.

This is an unsustainable fiscal path. In a telling statistic, the country’s debt-to-GDP ratio was 105 percent in the first quarter of 2019. According to the World Bank, debt-to-GDP ratios which exceed just 77 percent for an extended period result in slower economic expansion. Every percentage point of debt above this level costs the country around 2 percent of sustained growth. The United States has been well above this threshold for years.

Yet both parties largely remain unmoved. Led by conservatives in the House Freedom Caucus and Republican Study Committee, House Republicans united to oppose the budget deal this week, which still passed with full Democrat support.

But House conservatives have been undermined at every step by Senate Republicans, who appear to have virtually no interest in restoring fiscal sanity. The majority party in the Senate dismissed the White House’s suggested $150 billion in spending offsets, opting instead to side with House Democrats in a paltry $77 billion in offsets whose application are delayed long enough to ensure they will most likely never take effect.

The attitude of Senate Republicans was probably best summed up by Majority Leader Mitch McConnell (R-Ky.), who reportedly reassured President Trump in the Oval Office that “no politician has ever lost office for spending more money.”

The state of fiscal conservatism has been on the decline in the last five years, but this budget deal officially represents its funeral. The party that gave us “cut, cap, and balance” is a shadow of its former self.

Content created by the Center for American Greatness, Inc. is available without charge to any eligible news publisher that can provide a significant audience. For licensing opportunities for our original content, please contact [email protected].

Photo Credit: Mark Wilson/Getty Images

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